1. © 2012, published by Flat World Knowledge 14-1 Information Systems: A Manager’s Guide to Harnessing Technology By John Gallaugher

2. © 2012, published by Flat World Knowledge 14-2 This work is licensed under the Creative Commons Attribution-Noncommercial-Share Alike 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by-nc-sa/3.0/or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA

3. © 2012, published by Flat World Knowledge 14-3 Chapter 14 Google in Three Parts: Search, Online Advertising, and Beyond

4. © 2012, published by Flat World Knowledge Learning Objectives Understand the extent of Google’s rapid rise and its size and influence when compared with others in the media industry Recognize the shift away from traditional advertising media to Internet advertising Gain insight into the uniqueness and appeal of Google’s corporate culture Understand the mechanics of search, including how Google indexes the Web and ranks its organic search results Examine the infrastructure that powers Google and how its scale and complexity offer key competitive advantages 14-4

5. © 2012, published by Flat World Knowledge Learning Objectives Understand how media consumption habits are shifting Be able to explain the factors behind the growth and appeal of online advertising Understand Google’s search advertising revenue model Know the factors that determine the display and ranking of advertisements appearing on Google’s search results pages Be able to describe the uses and technologies behind geotargeting 14-5

6. © 2012, published by Flat World Knowledge Learning Objectives Understand ad networks, and how ads are distributed and served based on Web site content Recognize how ad networks provide advertiser reach and support niche content providers Be aware of content adjacency problems and their implications Know the strategic factors behind ad network appeal and success 14-6

7. © 2012, published by Flat World Knowledge Learning Objectives Know the different formats and media types that Web ads can be displayed in Know the different ways ads are sold Know that games can be an ad channel under the correct conditions Be familiar with various tracking technologies and how they are used for customer profiling and ad targeting Understand why customer profiling is both valuable and controversial Recognize steps that organizations can take to help ease consumer and governmental concerns 14-7

8. © 2012, published by Flat World Knowledge Learning Objectives Understand the privacy concerns that arise as a result of using third-party or tracking cookies to build user profiles Be aware of the negative consequences that could result from the misuse of third-party or tracking cookies Know the steps Google has taken to demonstrate its sensitivity to privacy issues Know the kinds of user information that Google stores, and the steps Google takes to protect the privacy of that information 14-8

9. © 2012, published by Flat World Knowledge Learning Objectives Be able to identify various types of online fraud, as well as the techniques and technologies used to perpetrate these crimes Understand how firms can detect, prevent, and prosecute fraudsters Understand the challenges of maintaining growth as a business and industry mature 14-9

10. © 2012, published by Flat World Knowledge Learning Objectives Recognize how the businesses of many firms in a variety of industries are beginning to converge Critically evaluate the risks and challenges of businesses that Google, Microsoft, and other firms are entering Appreciate the magnitude of this impending competition, and recognize the competitive forces that will help distinguish winners from losers 14-10

11. © 2012, published by Flat World Knowledge Introduction Google earns money by pairing Internet surfers with advertisers and taking a cut along the way Google’s stated mission is “to organize the world’s information and make it universally accessible and useful,” advertising drives profits and lets the firm offer most of its services for free 14-11

12. © 2012, published by Flat World Knowledge Figure 14.1 - U.S. Advertising Spending (by selected media) 14-12

13. © 2012, published by Flat World Knowledge Figure 14.2 - U.S. Online Ad Spending (by format) 14-13

14. © 2012, published by Flat World Knowledge Figure 14.3 - U.S. Search Market Share (Volume of Searches, June 2012) 14-14

15. © 2012, published by Flat World Knowledge Introduction Google’s market capitalization (market cap) makes it the most valuable media company on the planet – Market capitalization (market cap): The value of a firm calculated by multiplying its share price by the number of shares Studying Google will gives us an idea of how quickly technology-fueled market disruptions can happen, and how deeply these disruptions penetrate various industries 14-15

16. © 2012, published by Flat World Knowledge Understanding Search Query: Search Organic or natural search: Search engine results returned and ranked according to relevance Search engines use different algorithms for determining the order of organic search results; at Google the method used is called PageRank – PageRank: Algorithm developed by Google cofounder Larry Page to rank Web sites 14-16

17. © 2012, published by Flat World Knowledge Understanding Search Search engine optimization (SEO): The process of improving a page’s organic search results – It has become a critical function for many marketing organizations Google is a bit vague about the specifics of precisely how PageRank has been refined, in part because many have tried to game the system 14-17

18. © 2012, published by Flat World Knowledge Spiders and Bots and Crawlers—Oh My! When performing a search via Google or another search engine, you’re not actually searching the Web Major search engines make a copy of the Web, storing and indexing the text of online documents on their own computers To create these massive indexes, search firms use software to crawl the Web and uncover as much information as they can find Software robots, spiders, Web crawlers: Software that traverses available Web links in an attempt to perform a given task – Search engines use spiders to discover documents for indexing and retrieval 14-18

19. © 2012, published by Flat World Knowledge Spiders and Bots and Crawlers—Oh My! In order to make its Web sites visible, every online firm provides Domain Name Service (DNS) listings – Domain Name Service (DNS): Internet directory service that allows devices and services to be named and discoverable Cache: Temporary storage space used to speed computing tasks Dark web: Technique to keep spiders out 14-19

20. © 2012, published by Flat World Knowledge What’s It Take to Run This Thing? Google doesn’t disclose the number of servers it uses, but by some estimates, it runs over 1.4 million servers in over a dozen so-called server farms worldwide – Server farm: A massive network of computer servers running software to coordinate their collective use Building massive server farms to index the ever-growing Web is now the cost of admission for any firm wanting to compete in the search market 14-20

21. © 2012, published by Flat World Knowledge Video Clip - Google’s Container Data Center The video—Google container data center tour—is a virtual tour to one of Google’s data centers To view the video, click hereclick here 14-21

22. © 2012, published by Flat World Knowledge Trendspotting with Google Google lets you see aggregate trends in what its users are searching for, and this yields powerful insights Google’s Trends as well as Insights for Search services allow anyone to explore search trends, breaking out the analysis by region, date, and other criteria 14-22

23. © 2012, published by Flat World Knowledge Understanding the Increase in Online Ad Spending There are three reasons driving online ad growth trends: – Increasing user time online – Improved measurement and accountability – Targeting Impressions: Number of times an ad is shown on a Web site 14-23

24. © 2012, published by Flat World Knowledge Search Advertising Search engine marketing (SEM): The practice of designing, running and optimizing search-engine ad campaigns Over two-thirds of Google’s revenues come from ads served on its own sites, and the vast majority of this revenue comes from search engine ads Keyword advertising: Advertisements that are targeted based on a user’s query Advertisers bid on the keywords and phrases that they’d like to use to trigger the display of their ad 14-24

25. © 2012, published by Flat World Knowledge Search Advertising Text ads appearing on Google search pages are billed on a pay-per-click (PPC) basis – Pay-per-click (PPC): A concept where advertisers don’t pay unless someone clicks on their ad Pay-per-click is sometimes used interchangeably with the term cost-per- click (CPC) – Cost-per-click (CPC): The maximum amount of money an advertiser is willing to pay for each click on their ad 14-25

26. © 2012, published by Flat World Knowledge Search Advertising If no one clicks on an ad: – Google doesn’t make money – Advertisers don’t attract customers – Searchers aren’t seeing ads they’re interested in 14-26

27. © 2012, published by Flat World Knowledge Search Advertising In order to create a winning scenario for everyone, Google has developed a precise ad ranking formula that rewards top performing ads by considering two metrics: – The maximum CPC that an advertiser is willing to pay – The advertisement’s quality score Quality score: A broad measure of ad performance Formula used by Google to determine the rank order of sponsored links appearing on search results pages Ad Rank = Maximum CPC × Quality Score 14-27

28. © 2012, published by Flat World Knowledge Search Advertising One factor that goes into determining an ad’s quality score is the click- through rate (CTR) for the ad – Click-through rate (CTR): The number of users who clicked an ad divided by the number of times the ad was delivered Quality score also includes: – The overall history of click performance for the keywords linked to the ad – The relevance of an ad’s text to the user’s query – Google’s automated assessment of the user experience on the landing page Landing page: The Web site displayed when a user clicks on an advertisement 14-28

29. © 2012, published by Flat World Knowledge Search Advertising When an ad is clicked, advertisers don’t actually pay their maximum CPC Google discounts ads to just one cent more than the minimum necessary to maintain an ad’s position on the page Ad ranking and cost-per-click calculations take place as part of an automated auction that occurs every time a user conducts a search Advertisers get a running total of ad performance statistics so that they can: – Monitor the return on their investment – Tweak promotional efforts for better results 14-29

30. © 2012, published by Flat World Knowledge Table 14.1 - 10 Most Expensive Industries for Keyword Ads 14-30

31. © 2012, published by Flat World Knowledge IP Addresses and Geotargeting Geotargeting: Identifying a user’s physical location for the purpose of delivering tailored ads or other content IP Address: A value used to identify a device that is connected to the Internet 14-31

32. © 2012, published by Flat World Knowledge Geotargeting Evolves Beyond the IP Address Other methods of geotargeting – Firms like Skyhook Wireless can identify a location based on its own map of Wi- Fi hotspots and nearby cell towers Wi-Fi: Wireless technologies linking base stations (or hotspots) with devices containing Wi-Fi chips – Many mobile devices come equipped with global positioning system (GPS) chips Global positioning system (GPS): A network of satellites and supporting technologies used to identify a device’s physical location 14-32

33. © 2012, published by Flat World Knowledge Ad Networks—Distribution beyond Search Google also serves ads through non-Google partner sites that join its ad network – These partners distribute ads for Google in exchange for a percentage of the take AdSense targets ads based on keywords automatically detected inside the content of a Web site AdSense and similar online ad networks provide advertisers with access to the long tail of niche Web sites by offering: – Increased opportunities for ad exposure – More-refined targeting opportunities 14-33

34. © 2012, published by Flat World Knowledge Ad Networks and Competitive Advantage For Google, its ad network is a distribution play The ability to reach more potential customers across more Web sites attracts more advertisers to Google Content providers want there to be as many advertisers as possible in the ad networks that they join, since this should increase: – The price of advertising – The number of ads served – The accuracy of user targeting 14-34

35. © 2012, published by Flat World Knowledge Ad Networks and Competitive Advantage Network effects would be present if advertisers attract content providers, which in turn attract more advertisers More participants bringing in more revenue also help the firm benefit from scale economies 14-35

36. © 2012, published by Flat World Knowledge More Ad Formats and Payment Schemes Web ad formats include, but are not limited to, the following: – Image (or display) ads: Graphical advertising (as opposed to text ads) – Rich media ads: Online ads that include animation, audio, or video – Interstitials: Ads that run before a user arrives at a Web site’s contents Internet Advertising Bureau (IAB): Sets common standards for display ads so that a single creative can run unmodified across multiple ad networks and Web sites 14-36

37. © 2012, published by Flat World Knowledge More Ad Formats and Payment Schemes Other ways ads are sold besides cost-per-click – Most graphical display ads are sold according to the number of times the ad appears (the impression) – Cost-per-action (CPA): A method of charging for adverting whenever a user performs a specified action such as signing up for a service, requesting material, or making a purchase – Affiliate programs: Vendors share a percentage of revenue with Web sites that direct purchasing customers to their online storefronts – On an exclusive basis which may be billed at a flat rate – In-game advertising also shows promise 14-37

38. © 2012, published by Flat World Knowledge Customer Profiling and Behavioral Targeting The communication between Web browser and Web server can identify: – IP address – The type of browser used – The computer type – Computer operating system 14-38

39. © 2012, published by Flat World Knowledge Customer Profiling and Behavioral Targeting An IP address can indicate a browser’s employer or university, which can be further matched with information such as firm size or industry The ability to identify a surfer’s computer, browser, or operating system can be used to target tech ads The greatest degree of personalization and targeting comes from cookies – Cookies: A line of identifying text, assigned and retrieved by a given Web server and stored by your browser 14-39

40. © 2012, published by Flat World Knowledge Customer Profiling and Behavioral Targeting An organization can’t read cookies that it did not give you You can see all of the cookies in your browser Third-party cookies: Sometimes called “tracking cookies” and are served by ad networks or other customer profiling firms – Tracking cookies are used to identify users and record behavior across multiple Web sites 14-40

41. © 2012, published by Flat World Knowledge Customer Profiling and Behavioral Targeting By serving and tracking cookies in ads shown across partner sites, ad networks can build detailed browsing profiles that include: – Sites visited – Specific pages viewed – Duration of visit – The types of ads you’ve seen and responded to 14-41

42. © 2012, published by Flat World Knowledge But What if I Don’t Want a Cookie! The most popular Web browsers allow you to block all cookies, block just third-party cookies, purge your cookie file, or even ask for your approval before accepting a cookie If you block cookies, you block any benefits that come along with them, and some Web site features may require cookies to work properly Deleting a cookie breaks a link between your browser and that Web site, – However, if you supply identifying information in the future, the site might be able to assign your old profile data to the new cookie 14-42

43. © 2012, published by Flat World Knowledge Customer Profiling and Behavioral Targeting IP targeting can’t reliably identify individual users, as users are regularly assigned different IP addresses as they connect and disconnect from various physical and wi-fi networks Cookies are assigned by browsers, and associated with a log-in account profile on that computer – This creates a problem if several people use the same browser on the same computer without logging on to that machine as separate users 14-43

44. © 2012, published by Flat World Knowledge Profiling and Privacy Contextual advertising has its limits – Targeting can benefit Web surfers, but users will resist if they feel that they are being mistreated, exploited, or put at risk Opt-in: A program (typically a marketing effort) that requires customer consent Mishandled user privacy could curtail targeting opportunities, limiting growth across the online advertising field 14-44

45. © 2012, published by Flat World Knowledge Profiling and Privacy Google has taken several steps to protect user privacy – It refuses to link query history or registration data to ad targeting – It refuses to link registration data with tracking cookies – Google has placed significant control in the hands of users Google’s “Ads Preferences Manager” allows surfers to see, remove, and add to, any of the categorizations that Google has assigned to that browser’s tracking cookies 14-45

46. © 2012, published by Flat World Knowledge Profiling and Privacy – Google allows users to install a cookie or plug-in that opts them out of interest-based tracking Opt-out: Programs that enroll all customer by default, but that allow consumers to discontinue participation if they want to Plug-in: A small computer program that extends the feature set or capabilities of another application 14-46

47. © 2012, published by Flat World Knowledge Google, Privacy Advocates, and the Law Some privacy advocates have voiced concern over what they see as the increasing amount of information that Google houses A security breach or employee error could leave data dangerously or embarrassingly exposed Google is increasingly finding itself in precedent-setting cases where the law is vague Ad targeting brings to a head issues of opportunity, privacy, security, risk, and legislation 14-47

48. © 2012, published by Flat World Knowledge Search Engines, Ad Networks, and Fraud Studying ad-related fraud: – Helps marketers, managers, and technologists understand potential vulnerabilities and methods used to combat them – Builds tech-centric critical thinking, valuation, and risk assessment skills 14-48

49. © 2012, published by Flat World Knowledge Search Engines, Ad Networks, and Fraud Common types of fraud that are attempted in online advertising include: – Enriching click fraud – Enriching impression fraud – Depleting click fraud – Depleting impression fraud – Rank-based impression fraud – Disbarring fraud – Link fraud – Keyword stuffing 14-49

50. © 2012, published by Flat World Knowledge Busting the Bad Guys Lots of clicks from a single IP make the bad guys easy to spot Click farms: Recruiting a network of users to engage in click fraud with the goal of spreading IP addresses across several systems and make a fraud effort more difficult to detect Zombie networks: Sometimes called “clickbots” or “botnets,” these are hordes of surreptitiously infiltrated computers, linked and controlled remotely – It is used to perpetrate click fraud and a variety of other computer security crimes 14-50

51. © 2012, published by Flat World Knowledge Busting the Bad Guys Search firm and ad network software can use data patterns and other signals to ferret out other types of fraud: – Including rank-based impression fraud – Spamdexing – Keyword stuffing 14-51

52. © 2012, published by Flat World Knowledge Strategic Issues Google leads in search/ad experience and expertise and continues to offer a network reach that’s unmatched Google’s brand is strong – Note: Switching costs for search users are incredibly low Defeating Google with some sort of technical advantage will be difficult, since Web-based innovation can often be quickly imitated 14-52

53. © 2012, published by Flat World Knowledge More Ads, More Places, More Formats Google has been a champion of increased Internet access It can lower the cost of surfing by giving mobile phone software away for free It has successfully lobbied the U.S. government to force wireless telecom carriers to be more open, dismantling walled gardens – Walled gardens: A closed network or single set of services controlled by one dominant firm 14-53

54. © 2012, published by Flat World Knowledge Motorola Mobility Google’s biggest deal to date was the purchase of Motorola Mobility The deal also gives Google ownership of the leading set top box manufacturer, with products that sit in roughly 65 percent of US homes with cable TV sets Google’s entry into the low-margin handset business may alienate other potential Android partners Motorola’s patents give Google an intellectual property counterpunch 14-54

55. © 2012, published by Flat World Knowledge YouTube YouTube demonstrates how a firm can create a large and vastly influential business in a short period of time But, businesses that host and serve large files of end-user content can be costly – Google has both the money and time to invest in nurturing this market – It continues to be hesitant in saturating the media with ads that may annoy users and constrain adoption 14-55

56. © 2012, published by Flat World Knowledge Social: Google+ The interface design of Google+ was praised The new features were tightly integrated with other Google products 14-56

57. © 2012, published by Flat World Knowledge Apps and Innovation Google is king of search and ads But, apps hasn’t matured to the point where it impacts the firm’s financials Experimentation and innovation are deeply ingrained in Google’s tech- centric culture, and this has led to a flood of product offerings Google’s “Apps” are mostly Web-based software-as-a-service offerings Google, Microsoft, and smaller rivals are migrating applications to the Web, allowing Office-style software to execute within a browser 14-57

58. © 2012, published by Flat World Knowledge Apps and Innovation Studying Google allows us to learn: Search and the infrastructure that powers this critical technology The business of ads, covering search advertising, ad networks, and ad targeting in a way that blends strategic and technology issues 14-58